How to Make SARS Work for Your Business.
Including everything you could, and should be claiming for
We know tax season can be daunting with many businesses scrambling to get what they need together in time, and in the rush potentially leaving money on the tax man’s table. We partnered with Tax Tim to give you all the information you need to handle your business tax like the BOSS you are so you can do the preparation now and finally make SARS work for you.
- The dates you need to know (and should add to your calendar now!)
- What information you need to keep for tax returns
- Which business expenses are tax deductible?
- How business tax is calculated
- What is the small business tax threshold?
- What happens if I switch from sole proprietor to pty ltd
- How does PAYE work?
- What resources and tools are available to make business tax filings easier?
- What other potential tax benefits are there?
What are the important dates I should be adding in my calendar?
Sole Proprietor (non-registered business):
August – 1st provisional tax return
February – 2nd provisional tax return
31 January after tax year end – ITR12 Annual tax return
Company (registered business)
6 months into the year – 1st provisional tax return
Company’s financial year end – 2nd provisional tax return
12 months after Company’s financial year end – ITR14 Annual tax return
What important information should I keep throughout the year that will impact my tax return? – see blog
Which business expenses are tax deductible?
Business expenses, also referred to as operating expenses, are those expenses incurred in the operation of the business. Don’t forget expenditure must be ‘in the production of income’.
Typical overheads could include:
- Accounting and bookkeeping costs.
- Internet: Costs to run and maintain the system.
- Insurance costs.
- Licences: Those that apply to the business.
- Legal fees: Costs incurred when obtaining legal advice.
- Maintenance and repairs.
- Motor vehicle costs: Maintenance, repairs and licences (costs should be allocated between personal and business usage based on mileage).
- Postage including stamps and mailing expenses.
- Printing and stationery: Letterheads, business cards.
- Delivery and freight.
- Depreciation: For business assets that lose value while in use by a business.
- Entertainment: Expenses – normally food and beverages paid for by the business to entertain people important to the business, such as customers and suppliers.
- Electricity and water: Costs associated with the business’s premises and the equipment use.
- Rent/Rates and taxes: For leasing your business’s premises.
- Rent: For any leased equipment, signage used by the business.
- Research and Development.
- Security: Costs for security services such as alarm monitoring, armed response, armed guards.
- Subcontractors: Other parties that have provided services for your business related to the product, services and sales.
- Telephone and Fax/Communication: Fixed line and cellular phone costs.
However ONLY business-related expenses are allowed to be claimed as a tax deduction. A lot of people have expenses that are part-business and part-personal – such as cell phone, rent, and petrol – and try to claim these in their entirety as a deduction. SARS is on the lookout for these claims and will heavily punish any chancers, so make sure only business expenses are claimed.
For those expenses like petrol and cell phone which are mixed, you will need to identify exactly what portion relates to business use and which portion is personal. Ideally, a written record or logbook (in the case of a vehicle) should be used for the calculation because SARS might one day want you to prove your estimation. If no records are available you can just make an educated estimate. Once you have decided on the ratio of business to personal use for a particular expense, you can claim the business portion in your tax return and in doing so reduce your taxable income 🙂
How business tax is calculated?
It depends on the legal status of your business:
The sole proprietorship itself is not separately taxed on its income. Instead, the sole proprietor reports business income and expenses on his or her own tax return. Therefore the business Owner is taxed on the profits at their applicable personal income tax rate.
Company profits are taxed at a flat rate of 28% (unless if qualifies as a Small Business Corporation (SBC) or micro business registered for turnover tax.
If the business’s turnover is less than R20m per year and it meets all other criteria which you can check here then it will be taxed according to the special tax rates for a Small Business Corporation.
Micro Business registered for turnover tax:
If the business’s turnover is less than R1m per year and it meets all other criteria which you can check here the business’s turnover will be taxed according to the special tax rates for micro businesses registered for turnover tax which you can check here.
What is the tax threshold for small businesses?
Sole proprietor – this would be the same for individuals which are R75,750 for 2018 and R78,150 for 2019 (if taxable income is less than this in the tax year, then tax is nil).
Registered Company: Tax is levied at 28% on taxable profit (there is no exempt portion)
What is the tax implication in switching from a sole proprietor to a Pty Ltd.? (there is no simple short answer for this, the tax regimes for each are completely different)
Individuals are taxed on a sliding scale, which means that the rate of tax you pay increases as your earnings increase. This is called a progressive rate of tax and applies to any individuals earning more than R75,000 per year.
As an individual, you benefit from the general tax rebate, which brings down the amount of tax you owe by a flat amount, depending on your age. If you’re under 65 years, this is called the primary rebate. There’s a secondary rebate for those over 65 years and a tertiary rebate for those over 75 years.
In a company, profits are taxed at a rate of 28%, irrespective of value. In addition, dividends tax is levied at 20% on profits retained in the company and distributed as a dividend in the future.
More clarification and examples of the difference between the two here.
How does PAYE work from a business owner perspective?
If the business owner employs staff, then it would need to register itself as an employer with SARS in order to deduct PAYE and UIF from its employees’ salaries and pay it over to SARS on a monthly basis. This applies to a sole proprietor as well as a registered company.
You can use Tax Tim’s handy calculator to work out the monthly PAYE deduction.
What resources and tools are available to make business tax filings easier?
Consider using an accounting software package to make your record keeping easier and more efficient. Remember, at the very least, you will need a detailed listing of your business’s income and expenses in order to compile its tax return. If you have a registered company, then you will need a set of financial statements as a starting point (Income Statement and Balance Sheet) and this is where an accounting package can be very helpful.
Tax Tim’s business tax return product will guide you through all the steps required to complete and submit a tax return for your company, in the intuitive and simple manner you have come to expect from TaxTim.
TaxTim will ask you easy to understand questions, in plain English (no tax knowledge required!) and convert your answers into a fully completed tax return, ready for submission to SARS. Our built-in calculations for depreciation, capital gains, doubtful debts and prepaid expenses amongst others make completing your company return quick and easy.
What other tax potential tax benefits are there?
Please see our blog here for a list of potential deductions which can save you tax.